The booming prediction market sector, propelled by record growth from platforms Kalshi and Polymarket, is now confronting a critical regulatory challenge that could reshape its U.S. expansion strategy.
November marked one of the strongest months on record for both companies, which allow users to bet on the outcomes of real-world events. Combined trading volumes reached historical highs, underscoring a surge in interest for these speculative markets.
Kalshi, a regulated prediction exchange, secured a fresh financing round that brought in $1 billion from investors including Sequoia Capital and CapitalG. This funding elevated its valuation to $11 billion.
Polymarket, another prominent platform, received crucial regulatory clearance to resume operations in the United States. The Commodity Futures Trading Commission (CFTC) issued a modified designation allowing it to function through traditional brokers and futures houses.
This regulatory approval for Polymarket and Kalshi’s substantial financial backing have fueled a perception of a growing duopoly in the global prediction market. Analysts suggest these developments are transforming what was once a niche activity into a more structured financial product.
Under CFTC oversight, prediction contracts are increasingly likened to traditional derivatives. Kalshi’s CEO reportedly stated that these platforms could rival major stock exchanges within a few years, given their current adoption rates and trading volumes.
Despite this rapid institutionalization, the sector faces an immediate challenge from a recent U.S. federal court ruling. In Nevada, a court determined that some contracts offered by Kalshi, particularly those related to sports outcomes, must be regulated under state gambling laws, not solely federal CFTC jurisdiction.
This decision directly questions the premise that prediction markets can operate under a uniform federal regulatory framework. If similar rulings emerge in other states, it could lead to fragmented legal oversight. Such fragmentation might complicate the offering of certain contracts and potentially subject platforms to increased state-level supervision, regulation, and taxation, thereby hindering aggressive expansion plans.